Discover the radical truth about Adam Smith in this feature-length documentary as we reveal how a shy philosopher who despised greed became the misunderstood patron saint of capitalism. For those seeking a deep exploration of the Scottish Enlightenment, the true history of economics, or simply an engrossing bedtime history story, this soothing narrative is crafted for you. It’s designed for deep relaxation – the perfect history for sleep, guiding you toward a restful night.
The Captain
The 5th book is the beginning of the modern socialist state.
Denny, you do know that?
No, I had no idea what you are talking about. The video I linked suggests that Smith only published two books, the first about Morals, the last about Wealth. So I asked
Based on the provided search results, the claim likely refers to
Chapter 5 of V.I. Lenin’s The State and Revolution, which is considered a foundational text for the establishment of the modern socialist state (specifically the Soviet model).
Key details regarding this:
- The Text: Chapter 5 of The State and Revolution, written by Lenin in 1917, is titled “The Economic Basis of the Withering Away of the State”.
- Significance: In this chapter, Lenin details the transition from capitalism to communism, outlining the necessity of the “dictatorship of the proletariat” and the organization of production, which provided the theoretical framework for the Soviet state.
- Context: The State and Revolution is widely regarded as the “veritable manifesto for the Russian Revolution,” defining how the working class should seize power and create a new type of state apparatus.
While other works like Das Kapital are called the “Bible of Socialism”, The State and Revolution is more specifically tied to the practical, structural beginnings of the 20th-century socialist state.
A critical commentary I read some time ago suggested that Marx knew Communism would never work so he devised a cover strategy, supposedly temporary, as cover for the Party dictatorship which had to be permanent to suppress the human Animal Spirits.
“Animal spirits” is a term coined by economist John Maynard Keynes to describe the emotional, instinctual, and psychological urges—such as confidence, fear, and optimism—that drive human behavior, particularly economic decisions like investment and spending. These forces are considered key drivers of economic booms and busts, moving beyond rational, purely mathematical models of behavior.
The dictatorship of the proletariat is a Marxist concept referring to a transitional state where the working class (proletariat) holds political power to abolish capitalism, suppress bourgeois resistance, and establish a classless, communist society. It serves as a temporary, democratic workers’ state aimed at socializing the means of production.
The Captain
I’m liking this Google AI guy! Saves a lot of time by not having to rewrite what has already been written.
AI has led you astray. The Wealth of Nations is composed of five parts called books. Not sure why. I asked google AI about the fifth book and socialism and communism and it said this
While Adam Smith and Karl Marx are often viewed as opposites, Marx’s critique of capitalism was built directly upon foundations laid in The Wealth of Nations. The commonalities between Smith’s work and the roots of socialism and communism lie in their shared analytical tools and their mutual concern for the well-being of the working class.
Division of Labor
- Smith’s Warning: He warned that a worker confined to a few simple tasks becomes “as stupid and ignorant as it is possible for a human creature to become”.
- Marx’s Echo: Marx similarly argued that modern industry “mortifies [the worker’s] body and ruins his mind,” transforming the human into a mere appendage of a machine.
Class Conflict
- Smith on Power: Smith noted that “masters” (employers) and “workmen” have interests that are “by no means the same”. He pointed out that employers have the upper hand in negotiations and often collude to keep wages low, famously stating that landlords “love to reap where they never sowed”.
- Marx on Revolution: Marx took this observation of conflict to its extreme, arguing that this inherent friction would inevitably lead to a proletarian revolution and the end of the class system altogether.
Both Smith and Marx were wary of the tendency for capital to concentrate in a few hands. Smith argued that businessmen rarely meet without conspiring to raise prices against the public.
In Book V, Smith advocated for publicly funded education to counteract the mental “stupidity” caused by the division of labor. This aligns with the socialist goal of using state resources to improve the standard of living for the working class
I really appreciate your reply! I read The Wealth of Nations a very long time ago, 1990s? As I recall, I had exited the rat race and had a lot of free time on my hands. I decided that reading the classics would a good way to use that time. Some classic novels bored me to death. I found a copy of The Wealth of Nations in a used bookstore. I also found Ayn Rand! My books are back in Caracas so I could not check up on The Wealth of Nations for this thread.
o o o o o o o o o o o o o o o o o o o o o o o o
I was going to laud LLMs. The architecture is very simple. In a string of words what is the most likely next letter? When I set up my consulting business my partner and I could guess each other’s next word. I still try to do it when listening to podcasts getting a pretty good score. BTW, I also use it to solve crossword puzzles. The difference with AI, I guess, is acquaintance with the subject matter.
What LLMs are missing is fact checking.
The Captain
Exactly. I take no responsibility for the quotes I copied and pasted, without checking, from Google AI.
The difference between Lord of the Rings and Atlas Shrugged:
”One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.” -John Rodgers.
There are a shat ton of AI produced history videos on YouTube. There are even videos on how to create AI history videos.
Isn’t it ironic that The Invisible Hand is pushing self-interested people to dedicate time to an entirely unproductive (if not counterproductive) endeavor?
This Redditor put it best -
“These videos will make people who are completely ignorant of history feel like they are experts and degenerate the expertise of the knowledgeable. Ultimately they strongly promote ignorance and misinformation.”
Thanks for sharing!
Is this one of them?
Why should I trust Reddit and the BBC more than the authors of this video?
The Captain
This is the million dollar question and a moving target as AI improves. For myself, I focus on content where there is a real identifiable human in charge. When something appears to be AI slop, or even high quality AI content, I turn it off.
A person can use AI or not, but in the end I want to consume media created by a person who is taking responsibility. They may be smart or stupid, biased or neutral, no getting around that, but after several interactions we humans are pretty good at judging other humans. OK, maybe not given election results on both sides of the aisle, but I have hope.
I think I know where many of you are coming from and even when I disagree with you, it’s more fun and informational than reading AI slop. Maybe in the future I won’t be able to judge your humanity but for now, I think we are a community of humans and that keeps me coming back.
Agree!
LLMs also give hints of not being human which one can catch if one pays attention, things like inconsistencies mouthing the name Bondi (i vs eye) and mouthing large numbers. On uTube you can search for How this thing was made clicking on more. If familiar with the topic one can spot inconsistencies.
The Captain
I certainly would not give Ayn Rand a literary award for her novels. After reading Atlas Shrugged and The Fountainhead I was left wondering what they were about. By contrast I really enjoyed The Virtue of Selfishness which ended my decades long search for a deity. She wrote, I paraphrase, “Anyone who believes in a supernatural being has no self respect” or words to that effect.
My mother told me that, as a wartime child, I asked, "How can there be a god with so much evil. I have no recollection. In my early twenties I started the search by learning about a number of religions. At one point I said to myself, “If I ever become a believer I’ll pick Judaism.” Why? Because Jews pick their Rabbis instead of one being forced on them from above. Self respect? Democracy?
The Captain
They are not even as cogent as Alfred E. Newman.
Denny,
Read on…
Smith vigorously attacked the antiquated government restrictions he thought hindered industrial expansion. In fact, he attacked most forms of government interference in the economic process, including tariffs, arguing that this creates inefficiency and high prices in the long run. It is believed that Smith’s theory influenced government legislation in later years, especially during the 19th century.
Smith advocated a government that was active in sectors other than the economy. He advocated public education for poor adults, a judiciary, and a standing army—institutional systems not directly profitable for private industries.
Of the Principle of the Commercial or Mercantile System: The book has sometimes been described as a critique of mercantilism and a synthesis of the emerging economic thinking of Smith’s time. Specifically, The Wealth of Nations attacks, inter alia, two major tenets of mercantilism:
Of Restraints upon the Importation: Chapter 2’s full title is “Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home”. The “invisible hand” is a frequently referenced theme from the book, although it is specifically mentioned only once.
As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Book 4, Chapter 2)
The metaphor of the “invisible hand” has been widely used out of context. In the passage above Smith is referring to “the support of domestic industry” and contrasting that support with the importation of goods. Neoclassical economic theory has expanded the metaphor beyond the domestic/foreign manufacture argument to encompass nearly all aspects of economics.[21]
Of the extraordinary Restraints: Chapter 3’s long title is “Of the extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which the Balance is supposed to be Disadvantageous”.
Of Drawbacks: Merchants and manufacturers are not contented with the monopoly of the home market, but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations, and therefore can seldom procure them any monopoly there. They are generally obliged, therefore, to content themselves with petitioning for certain encouragements to exportation.
Of these encouragements what are called Drawbacks seem to be the most reasonable. To allow the merchant to draw back upon exportation, either the whole or a part of whatever excise or inland duty is imposed upon domestic industry, can never occasion the exportation of a greater quantity of goods than what would have been exported had no duty been imposed. Such encouragements do not tend to turn towards any particular employment a greater share of the capital of the country than what would go to that employment of its own accord, but only to hinder the duty from driving away any part of that shares to other employments.
Of Bounties: Bounties upon exportation are, in Great Britain, frequently petitioned for, and sometimes granted to the produce of particular branches of domestic industry. By means of them our merchants and manufacturers, it is pretended, will be enabled to sell their goods as cheap, or cheaper than their rivals in the foreign market. A greater quantity, it is said, will thus be exported, and the balance of trade consequently turned more in favour of our own country. We cannot give our workmen a monopoly in the foreign as we have done in the home market. We cannot force foreigners to buy their goods as we have done our own countrymen. The next best expedient, it has been thought, therefore, is to pay them for buying. It is in this manner that the mercantile system proposes to enrich the whole country, and to put money into all our pockets by means of the balance of trade.
Of Treaties of Commerce:
When a nation binds itself by treaty either to permit the entry of certain goods from one foreign country which it prohibits from all others, or to exempt the goods of one country from duties to which it subjects those of all others, the country, or at least the merchants and manufacturers of the country, whose commerce is so favoured, must necessarily derive great advantage from the treaty. Those merchants and manufacturers enjoy a sort of monopoly in the country which is so indulgent to them. That country becomes a market both more extensive and more advantageous for their goods: more extensive, because the goods of other nations being either excluded or subjected to heavier duties, it takes off a greater quantity of theirs: more advantageous, because the merchants of the favoured country, enjoying a sort of monopoly there, will often sell their goods for a better price than if exposed to the free competition of all other nations. Such treaties, however, though they may be advantageous to the merchants and manufacturers of the favoured, are necessarily disadvantageous to those of the favouring country. A monopoly is thus granted against them to a foreign nation; and they must frequently buy the foreign goods they have occasion for dearer than if the free competition of other nations was admitted.
Of Colonies:
Of the Motives for establishing new Colonies:
The interest which occasioned the first settlement of the different European colonies in America and the West Indies was not altogether so plain and distinct as that which directed the establishment of those of ancient Greece and Rome. All the different states of ancient Greece possessed, each of them, but a very small territory, and when the people in any one of them multiplied beyond what that territory could easily maintain, a part of them were sent in quest of a new habitation in some remote and distant part of the world; warlike neighbours surrounded them on all sides, rendering it difficult for any of them to enlarge their territory at home. The colonies of the Dorians resorted chiefly to Italy and Sicily, which, in the times preceding the foundation of Rome, were inhabited by barbarous and uncivilised nations: those of the Ionians and Eolians, the two other great tribes of the Greeks, to Asia Minor and the islands of the Egean Sea, of which the inhabitants seem at that time to have been pretty much in the same state as those of Sicily and Italy. The mother city, though she considered the colony as a child, at all times entitled to great favour and assistance, and owing in return much gratitude and respect, yet considered it as an emancipated child over whom she pretended to claim no direct authority or jurisdiction. The colony settled its own form of government, enacted its own laws, elected its own magistrates, and made peace or war with its neighbours as an independent state, which had no occasion to wait for the approbation or consent of the mother city. Nothing can be more plain and distinct than the interest which directed every such establishment.
Causes of Prosperity of new Colonies:
The colony of a civilised nation which takes possession either of a waste country, or of one so thinly inhabited that the natives easily give place to the new settlers, advances more rapidly to wealth and greatness than any other human society. The colonists carry out with them a knowledge of agriculture and of other useful arts superior to what can grow up of its own accord in the course of many centuries among savage and barbarous nations. They carry out with them, too, the habit of subordination, some notion of the regular government which takes place in their own country, of the system of laws which supports it, and of a regular administration of justice; and they naturally establish something of the same kind in the new settlement.
Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope:
Such are the advantages which the colonies of America have derived from the policy of Europe. What are those which Europe has derived from the discovery and colonisation of America? Those advantages may be divided, first, into the general advantages which Europe, considered as one great country, has derived from those great events; and, secondly, into the particular advantages which each colonising country has derived from the colonies which particularly belong to it, in consequence of the authority or dominion which it exercises over them.:
The general advantages which Europe, considered as one great country, has derived from the discovery and colonisation of America, consist, first, in the increase of its enjoyments; and, secondly, in the augmentation of its industry.
The surplus produce of America, imported into Europe, furnishes the inhabitants of this great continent with a variety of commodities which they could not otherwise have possessed; some for conveniency and use, some for pleasure, and some for ornament, and thereby contributes to increase their enjoyments.
Conclusion of the Mercantile System: Smith’s argument about the international political economy opposed the idea of mercantilism. While the Mercantile System encouraged each country to hoard gold, while trying to grasp hegemony, Smith argued that free trade eventually makes all actors better off. This argument is the modern ‘Free Trade’ argument.
Of the Agricultural Systems: Chapter 9’s long title is “Of the Agricultural Systems, or of those Systems of Political Economy, which Represent the Produce of Land, as either the Sole or the Principal, Source of the Revenue and Wealth of Every Country”.
That system which represents the produce of land as the sole source of the revenue and wealth of every country has, so far as by that time, never been adopted by any nation, and it at present exists only in the speculations of a few men of great learning and ingenuity in France. It would not, surely, be worthwhile to examine at great length the errors of a system which never has done, and probably never will do, any harm in any part of the world.
Smith postulated four “maxims” of taxation: proportionality, transparency, convenience, and efficiency. Some economists interpret Smith’s opposition to taxes on transfers of money, such as the Stamp Act, as opposition to capital gains taxes, which did not exist in the 18th century.[22] Other economists credit Smith as one of the first to advocate a progressive tax.[23][24] Smith wrote, “The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” Smith believed that an even “more proper” source of progressive taxation than property taxes was ground rent. Smith wrote that “nothing [could] be more reasonable” than a land value tax.
Of the Expenses of the Sovereign or Commonwealth: Smith uses this chapter to comment on the concept of taxation and expenditure by the state. On taxation, Smith wrote,
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.
Smith advocates a tax naturally attached to the “abilities” and habits of each echelon of society.
For the lower echelon, Smith recognised the intellectually erosive effect that the otherwise beneficial division of labour can have on workers, what Marx, though he mainly opposes Smith, later named “alienation”; therefore, Smith warns of the consequence of government failing to fulfill its proper role, which is to preserve against the innate tendency of human society to fall apart.
…“the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life… But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”[25]
Under Smith’s model, government involvement in any area other than those stated above negatively impacts economic growth. This is because economic growth is determined by the needs of a free market and the entrepreneurial nature of private persons. A shortage of a product makes its price rise, and so stimulates producers to produce more and attracts new people to that line of production. An excess supply of a product (more of the product than people are willing to buy) drives prices down, and producers refocus energy and money to other areas where there is a need.[26]
Of the Sources of the General or Public Revenue of the Society: In his discussion of taxes in Book Five, Smith wrote:
The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.[27]
He also introduced the distinction between a direct tax, and by implication an indirect tax (although he did not use the word “indirect”):
Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labour, and are attended with all the inconveniences of such taxes.[28]
And further:
It is thus that a tax upon the necessaries of life operates exactly in the same manner as a direct tax upon the wages of labour.
This term was later used in United States, Article I, Section 2, Clause 3 of the U.S. Constitution, and James Madison, who wrote much of the Constitution, is known to have read Smith’s book.
Of War and Public Debts:
…when war comes [politicians] are both unwilling and unable to increase their [tax] revenue in proportion to the increase of their expense. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war […] The facility of borrowing delivers them from the embarrassment […] By means of borrowing they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war, and by the practice of perpetually funding they are enabled, with the smallest possible increase of taxes [to pay the interest on the debt], to raise annually the largest possible sum of money [to fund the war]. …The return of peace, indeed, seldom relieves them from the greater part of the taxes imposed during the war. These are mortgaged for the interest of the debt contracted in order to carry it on.[29]
Smith then goes on to say that even if money was set aside from future revenues to pay for the debts of war, it seldom actually gets used to pay down the debt. Politicians are inclined to spend the money on some other scheme that will win the favour of their constituents. Hence, interest payments rise and war debts continue to grow larger, well beyond the end of the war.
Summing up, if governments can borrow without check, then they are more likely to wage war without check, and the costs of the war spending will burden future generations, since war debts are almost never repaid by the generations that incurred them.
Picking only from the first paragraph of your TLDR post, tariffs certainly do “create interference” and “higher prices” and have other deleterious effects on an purely open and free market.
On the other (and more Macro side) they also level the playing field and do things which are extremely advantageous. For instance: The US colonies enacted tariffs under the Articles of Confederation to bve used as protections against each other, and it was a debacle, with each state fighting every other, and the economy was a shambles. Then, and under the newly enacted Constitution, they enacted unified tariffs against foreign countries, notably Great Britain, which had a highly developed industrial sector (the US did not) and which used “dumping” and other economic levers to keep US industries from forming and eventually competing.
Britain attempted to control and restrict American business in the 1700s throughBritain hoped to achieve by economic warfare (keeping the US a vassal state) what it had not achieved by conventional war. Tariffing foreign products it gave US producers the time and capital to build iron smelters, machine shops, and other industrial enterprises as would later become the roaring economy of the US in the 1800’s. So while those tariffs did, indeed, “raise prices”, they also allowed for the formation of a great nation.mercantilist policies designed to keep the colonies economically subordinate. Parliament passed laws limiting manufacturing (like hats and iron) and restricting trade (via the Navigation Acts) to ensure colonies remained suppliers of raw materials and consumers of British goods.
One need only look to today to see how the Chinese corner on rare earths has given them a geopolitical advantage, over and above the actual value of the minerals involved. Or think back to 1973, when OPEC embargoed the single more important component of our economy: oil, and what that did to the US for a decade. Without any sorts of intelligent controls, you risk putting the entire economy in jeopardy over a purist philosophy.
(Yes, if the entire world behaved rationally and without any sort of encumbrances that wouldn’t be true. Also if people were nicer there wouldn’t be any murders.)
There is certainly much to be learned from Smith’s book. There’s also a danger in believing every word. Same, times double, for Rand.
When you level the playing field you hurt one side to benefit the other side. Is that an overall wash, a loss, or a again?
The other side does not pay the tariffs, your customers do and have to buy in a reduced market. Less supply raises prices.
Smith got it right.
The Captain
GoofyH,
Reading Smith is like looking through a prism. The light scatters and regroups. Like reading the Bible, you can make anything of it.
If you wanted a straightforward version of economics, you can get it, but those folks have no clue.